Q1-2014: The Maturation of Amarantus

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“If you can’t take the heat, get out of the kitchen” –Harry S. Truman

There is no doubt that, as an asset class, biotechnology provides investors with a love-hate relationship like no other, sometimes more hate than love. Even the biggest companies, with the longest histories and the most money at their disposal to advance the seemingly most de-risked assets are handed back failures from the FDA and other regulatory agencies throughout the world; or worse yet, have their drugs recalled from the marketplace after finding high rates of complications unforeseen in a clinical trial setting. What this implies is that there is absolutely no way of truly knowing the outcome of any programs’ fate. For a small company, this has tremendous implications from an enterprise risk perspective, as the revenues that support large companies through their failures are non-existent in small companies. The flip-side is, as was recently seen with Intercept Pharmaceuticals, that the innovation and risk small companies incur while developing their programs can be handsomely rewarded through proper preparation, diligent execution and, quite frankly, a heavy dose of luck.

For Amarantus, we have taken the view that building a world-class biotechnology company in the absence of product revenue (for the time being) requires a number of key elements in order to truly thrive, including; 1) products that are very near to market, 2) products that in mid-stage development, 3) early-stage products with significant potential, and 4) programs that will continue to fill the pipeline.

The Company expects to commercialize LymPro in the second half of 2014 under CLIA in Alzheimer’s disease, one of the largest and most underserved markets in the world ($200B+ in the US alone, $500B+ worldwide) where we will seek to fulfill the key unmet medical need of early diagnosis. While CLIA will not allow the Company to generate the revenues that a full FDA approval eventually will, we believe there is an opportunity to generate meaningful revenues that will offset development costs in other areas until such a point where we are able to realize revenue generation in other categories;

Eltoprazine is expected to be entering Phase 2b later this year in Levadopa-Induced Dyskynesia (PD LID), an indication with revenue potential in excess of $750M per year in the United States alone. In addition, the Company has the opportunity to initiate a Phase 2b trial in Adult ADHD, where there is a growing need for non-scheduled, non-stimulant-based treatments. Importantly, Eltoprazine has been evaluated in over 700 patients to date, and has a very strong safety profile thereby mitigating commercial safety risk for potential partners;

MANF continues to mature as we move forward, in large part due to the wealth of relevant science being published on this asset by independent third parties throughout the world. It is truly amazing to the team here that discovered MANF to see the potential this asset holds. With orphan indications such as Retinitis Pigmentosa currently being moved towards IND, MANF’s potential for both protein and gene therapy as a curative treatment for Parkinson’s disease, and ultimately the plethora of other indications the underlying MANF mechanism may treat, the possibilities for MANF to change the practice of medicine in a number of key areas appears to be rooted in strong science. Ultimately, this promise will have to be delivered upon in the clinic, and we are eager to see this come to fruition.

PhenoGuard has already proven itself worthy by leading to the discovery of the MANF-family of proteins, a very fundamental family of molecules with key characteristics established throughout evolution. The discovery of another such protein family would transform PhenoGuard into the first ever rationally-designed neurotrophic factor discovery platform, a tremendously valuable asset for high science companies.

In order to make this pipeline relevant, it is important to have the cash necessary to drive these programs forward. In order to obtain the necessary cash on an ongoing basis, the Company retained F. Randall Grimes last summer in order to prosecute a grants program based upon the assets we had at the time. Mr. Grimes is continuing his work in this area and we are bringing on additional expertise in order to take full advantage of new opportunities presented to us by various agencies. Grants require a long review cycle prior to capturing funding, and therefore it is prudent to submit multiple applications in order to increase the likelihood of funding. We were pleased to see the NIH’s budget fully restored for fiscal year 2014 and are actively involved in liaising with various agencies and other organization.

In addition, we announced this morning the addition of two key members to the Amarantus team: Kerry Segal and Tiffini Clark. These additions are important to the Company because of the experience they bring to the Company from a business development and regulatory perspective. Business development transactions are a tremendous way to raise capital, offset costs and build investor confidence. However, they must be effective for the long-term benefit of the Company, rather than short-term gain at the detriment of long-term value. As such, adding these key executives to our team gives us key resources to assess key metrics and help us to make better more informed decisions given available options.

Further, the Company recently announced a transaction to raise an additional $3M via the exercise of warrants previously issued in the convertible note and warrant financing announced in October. The merits of this transaction are clear:

We are raising $3M without the need to go to market and expose our common stock to fund-raising risk;

We are removing the derivative warrant liability from our balance sheet and replacing it with 25% fewer warrants that are priced at double the previous exercise price;

The new warrants can be called by the Company at any time if the stock is trading above $0.18 at the time of an up-listing, OR if the Company continues to trade on the OTC for a period of 20 days at or above $0.18.

We are enthused by our investors expressing such optimism for the future of the Company with key milestones standing before us in the months ahead , as well as a tremendous show of confidence in management’s judgment regarding the optimal time to effect an up-listing to a national exchange. Once this transaction formally closes, we will be in a position to have substantive discussions with both NASDAQ and NYSE regarding the prospects for an up-listing, while being in a position to negotiate with $6.5M available within our current cap structure; meaning there will be significantly less market risk from their perspective regarding granting pre-approval for such a transaction. We were also delighted that our longstanding investor, Dominion Capital, committed to facilitate the transaction via a $0.5M loan to the Company with no conversion rights, to be repaid out of the proceeds of the transaction. We believe this transaction is a win for the Company, the investors and shareholders. Up-listing to a major exchange in North America is a key value-inflexion for the Company from a corporate standpoint as the Company will be exposed to a much broader base of retail and institutional investors capable of investing into our common stock. We believe this will add liquidity to our currency, as well as help mitigate short-term price fluctuations due to market manipulation that is rampant on the OTC. Biotechnology investing is also about credibility; our brand will gain in credibility once up-listed.

We believe it is always important to negotiate from a position of strength, and this transaction definitely puts us in a position of strength in a number of ongoing negotiations. To date we are happy to report that management has delivered on many of our pre-set milestones, and we believe we will continue to do so. I have always said that if we are going to bet on anyone, we’re going to bet on ourselves, and I believe strongly this wager will pay off in spades in the months and years ahead.

In closing, in addition to securing additional capital on attractive terms, we continue to forge forward with the formal addition of two talented executives to our team. As our pipeline continues to progress, we maintain our entire financial interests in our assets and our development team now has the necessary capital and business development support to execute on our plans. We are very pleased with our current position halfway through the first quarter of 2014, and we look forward to the weeks and months ahead.

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Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are forward-looking statements." These forward-looking statements generally are identified by the words believes," project," expects," anticipates," estimates," intends," strategy," plan," may," will," would," will be," will continue," will likely result," and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

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